New markets
We use a rigorous process of research and due diligence to evaluate new markets. Our research team adopts seven key viability tests to identify potential new markets.
Introducing our home credit business to new markets is vital to our long-term development strategy. We constantly monitor and evaluate markets where we think our business will prosper and carefully calculate the right time to make our entry.
We use a rigorous process of research and due diligence to evaluate new markets. This research phase can take 18 months to complete. It is managed by a small internal research team supported by legal and financial specialists and research organisations in the new market. On the basis of this research the board decides whether or not to invest in a pilot operation.
If we believe there is long-term growth potential in a new market, we will then begin to roll-out our operations throughout the country, increasing our branch network, agent workforce and recruiting more customers. Our previous experience has shown that it takes around a further two years for a new operation to become mature and to reach profitability.
Detailed market research
Our initial viability tests have identified a number of countries which we see as strong candidates for our business, and we will perform detailed research on the most attractive market opportunities. This will be centred primarily on investigating potential customers’ history of, or propensity for, borrowing together with focus groups introducing the home credit model. Based on this research and using the performance data of all our other markets, we will then assess the size of the target customer base and build a financial model.
In light of the deteriorating global economic climate, we are not planning to open in any new markets in 2009. We are ready to resume our plans when economic conditions improve.
Seven key viability tests
| Population | The country must have a population of more than 8 million, bringing some 56 countries into possible consideration. This is because the cost of establishing a head office and control infrastructure in a new market is similar regardless of size, thereby making the returns from smaller markets less attractive. |
| Legislation | We review relevant local laws to identify whether we would need to make any changes to the operating model to ensure compliance with the law. We also need to be happy that courts uphold the law in practice. |
| Safety | We need to be sure that all employees and agents will be safe. We would not enter any country where there was civil unrest and we would be cautious about countries with high perceived levels of corruption. |
| Funding | We need to be sure that we can obtain funding in local currencies. A key strength of our business model is that we borrow and lend in the local currencies. |
| Individual wealth | We need to establish the basic income levels of the population to make an initial assessment of our potential customer base and the size of loans they would be able to repay. |
| Economic performance | The local economy must be relatively stable and strong. |
| Political environment | We look to work in stable, democratic countries, where the rule of law applies. This also helps to ensure we can apply our business principles such as respecting human and labour rights. |